The Indian stock market has experienced an excellent rally in the last couple of months, especially in the Midcap and Smallcap space, driven by positive FII inflows, robust economic prospects relative to other EM countries, strong earnings outlook, robust demand across sectors, improved health of the banking sector, and positive expectations for the private investment cycle.
Benchmark index Nifty50 and the S&P 500 are up around 10% and 14% respectively over the past year. On the other hand, the Emerging Market Index is down by 2%. This outperformance has been led by the country’s robust economic outlook, according to Axis Securities. In addition, the broader market has significantly outperformed the benchmark index in the last one year.
Analysts at Axis Securities believe that macroeconomic developments will continue to drive the Indian share market direction moving forward and the critical near-term monitorables will be Direction of Oil, The Dollar Index, US Bond yields, The FOMC meeting in Sep’23, and Further progress of the monsoon. From here onwards, the market is likely to see a style and sector rotation, they noted.
While the medium to long-term outlook for the overall stock market remains positive, analysts believe that volatility may be seen in the short run with the market responding in either direction. Keeping this in view, the current setup is a ‘Buy on Dips’ market, said Axis Securities. "We recommend investors maintain good liquidity (10%) to use any dips in a phased manner and build a position in high-quality companies (where the earnings visibility is quite high) with an investment horizon of 12-18 months," it added.
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In the bull case, stock market analysts at Axis Securities value Nifty50 at 22x, which translates into a Dec’23 target of 22,200. "Our bull case assumption is based on the overall reduction in volatility and the success of a soft landing in the US market. If the market sails through the next 1 or 2 quarters smoothly, we would likely see the next level of triggers along with money flowing to EMs. This, in turn, would increase the market multiple," it said.
Positive Near-term Outlook: Domestic-oriented stocks, Telecom, Auto, Domestic cyclicalImproving Outlook: BFSI, Industrials, PSUs, Rural themeMixed bag: Export-oriented themes, Pharma, Discretionary, and ITNear-term challenging but well-placed for longer time horizons: Metals, Commodity-linked stocks, and Selective Cyclicals (Cement)
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